Event: Jianlang Hardware released the 2024 three-quarter report. The company achieved revenue of 4.91 billion yuan in the first three quarters, down 11.51% year on year, and realized net profit of 32.87 million yuan, down 77.22% year on year. Among them, the amount of non-recurring profit and loss such as impairment receivables was 31.56 million yuan, or 8.85 million yuan in the same period last year, or 1.31 million yuan after deducting net profit from mother, down 99.04% year on year. Looking at a single quarter, Q3's revenue was 1.7 billion yuan, down 22.46% year on year, net profit to mother was 27.98 million yuan, down 78.71% year on year, and net profit not returned to mother was 18.21 million yuan, down 86.14% year on year.

Engineering products bucked the trend, and overseas performance was impressive. Jianlang Hardware's revenue in the first three quarters showed a double-digit year-on-year decline, mainly due to the sluggish domestic real estate market and weak terminal demand. By product, door and window hardware, which is highly related to real estate, fell by about 18% year-on-year in the first three quarters and 21% year-on-year in the third quarter; door control hardware products closely related to commercial real estate declined year-on-year; other construction hardware products declined year-on-year; while public construction products have maintained a contrarian growth trend since this year, with point support and stainless steel fence sheets increasing by +15%, respectively. Improvement of capital payments to state-owned enterprises Related. Looking at the subregion, domestic demand continued to bottom out. The overall domestic demand fell by about 14% in the first three quarters, with provincial capitals, prefecture-level cities, and counties falling by about 12%, 14%, and 15% year on year respectively; however, the overseas sector showed a good growth trend. The overall growth rate was over 10%, and the growth rate reached 18% after excluding Portuguese subsidiaries. Among them, India grew by more than 20%, the Middle East and Europe grew by more than 40%, and Africa, Malaysia, and Mexico grew close to 80%.

Gross profit margins are relatively stable, and cash flow management has been strengthened. Jianlang Hardware's comprehensive gross profit margin for the third quarter of the single quarter was 31.37%, with a decrease of 0.79 pct and 0.54 pct, respectively. Overall, there was a steady, moderate decline. The main reason was that fixed costs were not effectively diluted after the decline in revenue, compounded by a reduction in sales prices for some products. In terms of cost ratio, the cost rate for a single Q3 company was 26.3%, increasing by 2.67 pct and 1.51 pct, respectively. Among them, sales, management, and R&D expenses all increased to a certain extent over the same period. The net profit margin for Q3 sales was 2.38%, with a decrease of 4.06 pct and 0.82 pct, respectively, compared with the same period last month. In terms of cash flow, the net operating cash flow of Jianlang Hardware in Q3 was 0.2 billion yuan, and the net profit cash content was 4.95, which is in good condition.

As of the end of Q3, the total amount of the company's accounts receivable and notes was 3.972 billion yuan, a year-on-year decrease of 9.9%. The decline was mainly due to the company's speeding up the processing of some arrears for engineering products from central and state-owned enterprises, and also speeding up the clean-up of accounts receivable through housing deliveries, etc. The company attached great importance to cash flow management while expanding its business.

Profit forecast and investment advice: Jianlang Hardware is one of the largest integrated suppliers of construction components in China. In the future, it plans to work simultaneously in domestic and foreign markets. It focuses more on new scenarios (non-housing projects such as schools, hospitals, hotels, factories, etc.) and the development of new products. The company's overall resilience to risks and growth is expected to continue to improve. Considering the current sluggish market environment, we lowered the company's profit forecast. We expect the company's net profit to be 0.07 billion, 0.17 billion, and 0.26 billion respectively in 2024-2026, maintaining the “buy” rating.

Risk warning: risk of large fluctuations in raw material prices; risk of poor progress in developing new categories of markets; risk of channel decline falling short of expectations; risk of overseas development falling short of expectations.